Incentives for Employees: Decisions You Need To Make

What You Need to Know Before Planning Incentives for Employees

There are many decisions you have to make regarding incentives for employees that will have a lot to say about how motivated and successful your people are and how successful the company will be. In fact, these design decisions include things like this:

What’s the total compensation target going to be?
We’re talking about total compensation target. But generally that’s taking a look at the marketplace and finding what the average salary is and what is the target incentive combined because whatever we do as incentives for employees, we want to pay that target a total compensation rate in the marketplace, we want to pay it to our people assuming our objectives are hit 100%.

What’s the mix going to be between salary and incentives for employees?
Meaning what portion of that total compensation package is going to be in salaries and what portion in incentives for employees.

What are the performance measures going to be?
Are we going to have what’s called a group plan or an individual plan? There aren’t too many people who are in individual plans. But our salespeople are on individual plans meaning it doesn’t really care what the group does. They’re going to get paid whatever their individual performance is. Although there are some of us who think maybe some sort of group measurement should even be in there for salespeople.

In any case, lots – the other employees outside the sales group are generally on some sort of group plan meaning that it’s a two-step process. One, a fund of money has to be created based on how well a group performed. And then step two is distributing that money to the individuals that’s been generated in this fund or pool

Are we going to have a revenue or a quota plan?
Salespeople will have to answer this question. And by a revenue plan, we’re talking about are we going to pay a certain percent of every dollar of revenue that a salesperson generates or are we going to pay on a quota plan which essentially says we’re going to pay a certain percent of a target incentive based on what percent of their performance is against a quota.

Finally, are our incentives for employees going to have a threshold?
A minimum level of performance required in order to fund or pay anybody out of a plan. What’s the target going to be? And then finally, are we going to have some sort of maximum either a maximum fund or a maximum payment to any individual?

And in between that threshold of maximum, lots of organizations these days use accelerators meaning that accelerators are opportunities to change the payout, a scheme somewhat based on what their performance level is.

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